Morning Report

31.05.2013

Optimistic report from Statistics Norway

NOK & 3m NIBOR
7.70 7.60 7.50 7.40 7.30 1.90

Statistics Norways new economic report indicates that GDP growth, after a slight slowdown this year, will remain in excess of 3% over the coming three years. Today, Norges Bank will announce its plans for foreign exchange purchases in June.
1.80
1.70

29-Apr

15-May

1.60 31-May
3m (rha)

EURNOK

Norw ay: 10y Gov't Bond

2.3

2.2
2.1

2.0
29-Apr
Rate

15-May

90 85 80 75 70 65 31-May
Diff (bp, rha)

Headquarter Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken Magnus Vie Sundal

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

Statistics Norway (SN) still paints a bright picture of the Norwegian economy in its recent economic report, which was presented yesterday. Even if growth for mainland GDP was adjusted slightly down this year (from 2.6% to 2.4%), the path for the coming years remain solid. SN estimates a growth of 3.0% next year, then 3.3% in 2015 and 3.2% in 2016. In comparison, our estimates are about one percentage point lower per year in the period 2014-16. The driver behind the surge is private consumption, which in turn is lifted by strong growth in revenues (partly as a result of tax cuts) and by a gradually lower savings ratio. SN also assumes that public consumption will increase more than in 2010-12 and that the growth in public investment will rise substantially. The forecasts hence include a more expansionary policy from a new government, which is likely to take over after the general election in September. In addition, SN has reduced the interest rate forecast, and forecast a weaker Norwegian krone going forward. The scenario looks glorious, but will undoubtedly increase the downside risk for the economy, not least because house prices continue to rise. Yesterday's figures for retail sales in April show that Norwegian households still appear cautious. Sales fell by 0.6% from March to April, and it thus appears that the fresh start of the year is about to become more muted. Norges Bank's expectations survey showed that inflation expectations 2-years ahead continue to decline gradually and is down to 2%, while expectations 5-years ahead seems stable at around the inflation target. It does not therefore appear that the central bank's own expectations, which were lowered to below the inflation target in March, has not led to lower expectations among economic agents. Today data for unemployment, credit growth and Norges Bank's foreign exchange purchases are released. We expect unemployment to remain unchanged at 2.6% (consensus is 2.4%) and credit growth is not expected to change much (projected down from 6.1% to 6.0%). FX purchases will likely attract most interest from the financial markets. After the new signals in the revised National budget, we believe that Norges Bank will adjust purchases down from 300 million per day so far this year to 200 million. Surprises can provide market reactions to the NOK, which in yesterday's trade strengthened slightly against both the euro and the dollar. The economic sentiment in the euro zone improved slightly in May. The benchmark ESI index rose more than expected from 88.6 to 89.4. Consumer confidence contributed positively, as did all industry indices except the construction industry. All indices are nevertheless still far below the long term average and ESI indicates that GDP will fall in the second quarter - for the seventh consecutive quarter. Today, the unemployment rate for April is due (waited up to 12.2%) and the flash estimate of inflation in May (expected up to 1.3%) will also be released today. In the U.S. GDP growth for the first quarter was adjusted slightly to 2.4%. An upward revision of the growth of private consumption to 3.4% was offset by the stronger cuts in the public sector. Initial claims rose to 354,000 last week, which was slightly more than expected. However, the improvement of the labor market continues. Pending home sales increased by 0.3% in April. This was less than expected, but is still pointing in the direction of higher actual sales of existing homes going forward. Despite the slightly weak numbers, US stock markets rose yesterday. Today data for personal consumption, income and savings for April are released, as well as Chicago PMI for May. From Japan a row of data were released this morning. It was positive that the PMI and production rose. Inflation is still negative. CPI for the country showed an annual drop of 0.7% in April, while the data for Tokyo showed a fall of 0.2% in May. However, deflation seems to abate somewhat. It was disappointing that household demand fell by 4.6% in April, while unemployment is stable at just over 4%. USDJPY has been almost unchanged since yesterday morning, while the Nikkei is up 1.4%. In a world where most central banks give full throttle, the Central Bank of Brazil go against the current. Yesterday the key rate in Brazil was hiked by 0.5% points to 8.0%. This was more than expected and came despite surprisingly weak GDP growth in the first quarter (0.6%). The reason for the tightening is high inflation, which is close to the upper limit of the central bank target range (2.5% 6.5%). knut.magnussen@dnb.no Yesterdays key economic events (GMT) 09:00 Norway Retail sales 10:00 EMU Consumer confidence 15:00 USA Pending Home Sales Todays key economic events (GMT) 08:00 Norway Reg. unemployment 08:00 Norway FX purchase 12:30 USA Core PCE Deflator As of Apr May Apr As of May Jun Apr Unit m/m% index m/m% Unit % Mill. m/m % Prior 0.2 -22.3 1.5 Prior 2.6 300 0.0 Poll 0.0 -22.0 1.6 Poll 2.4 0.1 Actual -0.6 -21.9 0.3 DNB 2.6 200

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 64 76 30 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51 24 16 91 23

Morning Report
31.05.2013

3m LIBOR
0.130 0.125 0.120 0.115 0.110 0.105 0.28 0.28 0.27 0.27 0.27 0.27 31-May
USD (rha)

29-Apr
EUR

15-May

Oil price & NOK TWI

94 93 92 91 90 110

105
100

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 101.09 1.2962 0.8564 7.4546 8.5976 1.2455 7.6300 5.8880 5.83 88.80 102.39 8.915 6.130

Today 100.88 1.3041 0.8566 7.4546 8.5659 1.2445 7.6111 5.8370 5.79 88.89 102.15 8.889 6.120

Spot rates and forecasts In 1m Aug-13 Nov-13 May-14 FX 0700 -0.2 102 105 107 110 AUD 0.6 1.27 1.26 1.30 1.32 CAD 0.0 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.4 8.55 8.45 8.50 8.60 RUB -0.1 1.24 1.25 1.27 1.30 GBP -0.2 7.55 7.50 7.45 7.40 HKD -0.9 5.94 5.95 5.73 5.61 KWD -0.7 5.83 5.67 5.36 5.10 LTL 0.1 88.3 88.8 87.6 86.0 LVL -0.2 101.3 100.7 100.0 99.3 NZD -0.3 8.88 8.82 8.66 8.51 SEK -0.2 608.87 600.00 586.61 569.23 SGD

USD NOK 0.965 5.631 1.031 5.662 0.954 611.529 19.737 29.570 31.695 18.413 1.522 8.884 7.764 0.752 0.286 20.411 2.648 2.204 0.538 10.848 0.809 4.719 6.569 88.843 1.261 4.628

29-Apr

15-May

95 31-May
USD/b (rha)

NOK TWI

US dollar 6.0 5.9 5.9 5.8 5.8 5.7

29-Apr 15-May
USDNOK

1.33 1.31 1.29 1.27 1.25 31-May

EURUSD(rha)

NOK 1m 3m 6m 12m 3y 5y 7y 10y

Prior 1.71 1.77 1.86 2.03 2.06 2.41 2.75 3.11

Last 1.70 1.77 1.87 2.03 2.07 2.40 2.73 3.09

SEK 1m 3m 6m 12m 3y 5y 7y 10y

Prior 1.17 1.20 1.24 1.47 1.77 2.06 2.34

Interest rates Last USD 1.17 1m 1.20 3m 1.24 6m #N/A 12m 1.47 3y 1.78 5y 2.05 7y 2.34 10y

Prior 0.19 0.28 0.42 0.69 0.65 1.18 1.69 2.26

Last 0.19 0.27 0.42 0.69 0.63 1.17 1.70 2.27

EUR 1m 3m 6m 12m 3y 5y 7y 10y

Prior 0.06 0.12 0.20 0.39 0.61 0.96 1.30 1.74

Last 0.06 0.12 0.20 0.40 0.61 0.95 1.30 1.73 Last 99.90 1.51 -0.59 10y sw ap 1.75 1.75 2.00

104.0 102.0 100.0 98.0 96.0 94.0

Japanese yen

29-Apr
USDJ PY

15-May

7.0 6.5 6.0 5.5 5.0 31-May

Norw ay Prior NST475 97.70 10y yld 2.26 - US spread 0.14 3m nibor 1.80 1.80 1.80

Norw ay Aug-13 Nov-13 May-14

Governm ent bonds Last SEK Prior Last US Prior 97.95 10y 96.25 96.20 10y 96.64 2.23 10y yld 1.90 1.91 10y yld 2.12 0.13 - US spread -0.23 -0.20 30y yld 3.27 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Aug-13 Nov-13 May-14 1.20 1.20 1.45 2.25 2.25 2.50 Aug-13 Nov-13 May-14 0.35 0.35 0.35

Last Germany Prior 96.83 10y 99.65 2.10 10y yld 1.54 3.26 - US spread -0.59 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25

Germany Aug-13 Nov-13 May-14

JPYNOK(rha)

SEKNOK & CHFNOK

90

89
88

87 29-Apr 15-May
SEKNOK

6.3 6.2 6.1 6.0 5.9 5.8 31-May

CHFNOK (rha)

Equities
15700 15200 14700 14200 13700 29-Apr
Dow Jones

500 490 480 470 460 15May 31May

Os lo (rha)

NOK sov. NST20 NST21 NST22 NST471 NST472 NST475 NST475 NST475 NOK FRA JUN SEP DEC MAR

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.47 1.52 5 18.09.2013 0.30 Last 92.79 92.78 1.40 1.40 0 18.12.2013 0.55 Oil price: (Ldn,cl) 1m 1.46 1.47 1 19.03.2014 0.80 SPOT 101.73 102.27 1.18 1.17 -1 15.05.2015 1.96 Gold price 30.05.2013 PM 1.48 1.45 -2 19.05.2017 3.97 AM: 1382.5 1413.5 0.00 0.00 0 24.05.2023 9.99 Equities Today 0700 % last 2.23 2.21 -1 24.05.2023 9.99 Dow Jones 15324.53 0.1% 2.26 2.23 -3 24.05.2023 9.99 Nasdaq C. 3491.30 0.7% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6656.99 0.4% 1.79 1.89 1m 1.77 1.70 Eurostoxx50 2799.20 0.5% 1.76 1.87 3m 1.88 1.77 DAX 8400.20 0.8% 1.77 1.89 6m 1.93 1.87 Nikkei 225 13831.76 1.8% 1.79 1.92 12m 2.08 2.03 OSEBX 491.97 0.0% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
31.05.2013
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